Your Money AND Your Life

This article is going to start out pretty far astray from money issues, so bear with me for a bit. Don’t worry, we’ll come back to dollars and cents.

Think about a time in your life where you did something that you quickly realized was the wrong thing to do. Perhaps it really hurt someone else. Perhaps it was something that just feels wrong to you to think about it. Maybe you did it just to impress someone that you shouldn’t have bothered to try to impress (at least not in that way), or maybe it was just a bad choice in the moment.

You probably felt awful about it afterwards, probably for quite a while. You likely regret it even now.

Now, on the other hand, think about a moment in your life where you did something that was just dead-on the right thing to do. It was completely in line with your values, it made things better, it was just the best thing to do in that moment. Maybe you really helped someone out. Maybe it was a culmination of a lot of positive effort on your part that resulted in just a great outcome for a lot of people.

Whatever it was, you probably felt great in that moment and shortly thereafter, and you probably still feel good about it to this day.

The big picture here is simple: it feels really good to live as close as possible to our ideals, and it feels pretty awful to live in opposition to those ideals.

Want an easy recipe for a good life? Try to frequently do the things that leave you feeling good both in the moment and perhaps even more importantly when you look back on with good feelings and pride, while trying to do things that leave you feeling bad and perhaps even more importantly that you look back on with regret and shape as infrequently as possible.

Do that and you’ll wind up with a pretty good life.

Great, so what does that have to do with finances?

The above recipe for a good life comes down to how you’re using your time and energy and focus, but the same idea applies when it comes to how you’re using your money.

In other words, if you want a recipe for a financially successful life, try to frequently do things with your money that are in line with your values and build to the big thing you want in life, and try to avoid doing things with your money that aren’t in line with your values and move you away from the big things you want in life. Better yet, figure out things on the “good side” of that equation that are also personally enjoyable for you in the moment.

Let’s jump into how that works in practice, using some small and some big examples.

Example 1 – Books

I’m an avid reader and have been since I was a little kid. I pretty much constantly had my nose in a book back then and you’ll still find me doing the same, even today, when I get a chance. Few things seem like a more pleasant use of a lazy Saturday afternoon than digging into a really good thought provoking book or getting lost in the pages of a suitably rich fictitious world.

Why do I read, though?

Do I enjoy getting lost in the pages of a good book as a way to escape? Do I use it as a way to learn about the world? Do I use it to explore scenarios and ideas and to develop a sense of right and wrong?

Even more to the point, am I a book collector? Do I value having a ton of books jammed in my house? Or am I more of a book reader who values having a long list of books that I’ve read?

What gives me value out of those things? What do I really care about? Furthermore, which of those things, done now, will I care about in ten or twenty years?

I think I’ll value having read most of the books I read, as long as they made me think and made me question the world. I’ll value having a few of my most-loved books on my shelf, but the rest that were more forgettable? I’ll be glad to not own them and not have to deal with them taking up space.

So, in the moment, I enjoy reading, but in the long run, I’ll value having read things that make me grow. So, I try to choose to read books that I believe will make me think and grow that simultaneously encourage me to turn the page.

I think I’ll value having a long healthy list of books I’ve read, but I can tell you I won’t value having a ton of books on my shelf that I have to deal with if I move or that my kids will have to deal with if I die. I just want to have a few favorites around that I’m sure to reread.

All of that ends up informing how I spend my book money. I basically only buy books if I’m going to reread them. For a first read, I almost always turn to the library; it’s only if that first read really strikes a chord with me that I’ll consider buying it. Some books are fun to read but forgettable; other books have one or two memorable scenes or good ideas but I won’t need to revisit them. It’s the latter group, the ones that really click with me and I know I’ll reread in the future, that I want on my shelf, and that’s honestly not that big of a shelf.

So, basically, reading challenging books from the library and occasionally buying ones that really resonate with me is the path forward that really reflects how I want to spend my time, energy, focus, and money. The closer I live to that principle in all dimensions, the better.

Example 2 – Housing

Right now, I live in a family house on the edge of a small town in Iowa. I like living here, for the most part. I have good relationships with all of my neighbors, have some of them over for dinner and cookouts on occasion, and my children are friends with several children that live nearby. I like our house for the most part, though I wish the kitchen was a bit larger and arranged differently.

Am I happy living here? Sure. It has plenty of space for our family and is nice enough that we often have people over for all kinds of events, plus it’s comfortable in the evenings with a really nice family room. I like it.

Do I want to live here in ten years? Probably, with a few changes. I want to redo the kitchen as several aspects of it frustrate me as someone who often prepares meals at home. Other than that… I think I’m pretty happy here.

What do I conclude from that?

One, there’s real value in me putting time, money, and energy into doing quality maintenance on this house, as I intend to live here for quite a few more years. It’s far easier and much more cost-effective to maintain the house and the large appliances in it than to just not bother and have disaster strike. You can get away with ignoring it for a little while, but then you’ll suddenly be hit with a conflux of expensive and time-consuming problems that could have been easily prevented.

Two, it’s going to be worthwhile to eventually redo the kitchen. We just need to decide how we want to redo it and how much of the labor we want to do ourselves. The sooner we start thinking about it, the longer we’ll have to enjoy the finished product.

So, it appears as though a continued focus on home maintenance and gradual planning for a kitchen renovation is the path forward that really reflects how I want to spend my time, energy, focus, and money with regards to housing going forward. The closer I live to that ideal in all dimensions, the better.

Example 3 – Parenting

While it is certainly enjoyable to do fun things with my family, the most important thing I can be doing as a parent is to teach them how to be successfully independent. What skills do they need to have so that they can survive and thrive on their own without the constant support of mom and dad?

That’s pretty much the constant thread in my parenting style. I try to consistently offer them advice on how to handle a lot of common things that I know they’re facing in life or that I know they’ll be facing in the near future. I ask them what ideas are on their mind and encourage them to talk about them in a general sense, so that I can talk through the issues without them having to feel that they’re going to self-incriminate a bad decision or snitch on a sibling.

I try to aim for unconditional love and if there does need to be some sort of penalty for a bad choice, I try to make that as clear as I can. They’re not perfect, but they can be good.

So, what does that translate into in terms of action, particularly regarding money?

Sarah and I are very careful with the money we buy our children and the things we buy them outside of holidays. We use an allowance system, but the allowance is small. We occasionally reward exceptional performance in schoolwork, but we don’t reward most of their good moves with anything financial.

For gift giving occasions, we try to aim for a very small number of nicer gifts rather than a lot of inexpensive stuff.

We talk a lot about our financial decisions with them. We discuss financial decisions pretty openly in front of them and we also involve them in spending decisions, even sometimes including their input. We aim to not have them feeling like money is mysterious, and we’re extremely clear about the dangers of debt and how it restricts your choices.

We’re also open already about how we’re saving for them for college and they know quite clearly what their responsibilities will be for paying for college.

These specific actions define the path forward that really reflects how I want to spend my time, energy, focus, and money with my children. The closer I live to those principles in all dimensions, the better.

The Overall Picture

All of these ideas boil down to one core principle.

We aim to spend our money, time, and other resources toward building the life we want to live while also enjoying today, but not spend those resources excessively.

In other words, we know where we want to go, so what’s the most efficient path to get there so that we have money left over for our other goals and our other areas of life.

I love to visit bookstores and buy books, but I’ve learned that buying books beyond what’s actually in line with what I want from my life (meaning anything beyond stuff I intend to re-read and usually stuff I’ve already read) doesn’t really add value to my life and in fact detracts from it.

I love living in a nice house and I intend to live here for a while, and I’ve learned that the best way to keep living here at minimal cost in the way that I like it is to keep doing maintenance on it and to plan for a low cost kitchen refresh.

I love being a parent and I want to raise kids that are functionally independent, and I’ve learned that the best way to do that is to not buy them everything they want along the way and be thoughtful about how we save for their future.

In each of those cases, that’s how we use money to achieve what we want today and what we want in the long term while minimizing our spending so that we have space for the other things we want in our life.

It’s your money AND your life.

The thing is, when you consistently make money and time and energy choices along with what you actually value, your life feels pretty good. If you make efficient money and time and energy choices along those lines, you have plenty of space for the other things you want out of life.

Making Mistakes

The thing is, we all make mistakes, usually because some goal or value we have in our life comes in conflict with another goal or value and we have to choose one or the other on the spur of the moment. We don’t always choose correctly and that often results in mixed or even negative feelings about the outcome.

Another way to look at this is “opportunity cost” – every time you choose to spend your money or time or energy on something, you’re also choosing NOT to use it on all of the things you could be using it for.

How can you solve that? You can’t.

As far as I’ve been able to tell, the best thing you can do to avoid such mistakes is to give some of your spare thoughts to thinking about such choices. Think about what you value, and how it ranks in comparison to other things you value. Envision situations where they might come into conflict, think about the best way to resolve them, and then visualize yourself doing just that.

You still won’t be perfect. You’ll still make mistakes. However, over time, you’ll find yourself hewing closer and closer to what it is you really want out of life, and if you seek to do that with minimal use of your resources, all the better.

Final Thoughts

One of the few things I don’t like about the book Your Money or Your Life is how the title makes it seem like it has to be a choice of some kind. You either have to choose “your money” or you have to choose “your life.”

I think a better title would be “your money and your life.” The core idea in the book is to spend your money in line with your values as efficiently as you can, a good idea that expands to all of life’s resources. However, that’s not a choice between your money and your life, it’s a path to having both.

If you’re unsure, trust in what feels right, not in the moment, but in terms of decisions you once made that resonate as being moments where you made the right decision or where you clearly made the wrong decision, and let that guide you. While it might not be perfect with numbers, your gut will often guide you to the right place if you listen to it beyond the heat of the moment and live by the principles and values that actually matter to you.

Good luck!

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2 Education Tax Credits That Can Make College More Affordable

This just in: College is expensive. And whether you’re a student yourself or supporting your spouse or dependent child through school, any break you can get helps.

Fortunately, the IRS offers a couple of education tax credits that can ease the financial burdens of college. In other words, these are incentives specifically for students and their parents that can lower the amount of taxes you owe for the year. 

Here’s what you need to know about the American Opportunity Tax Credit and the Lifetime Learning Credit, as well as how to determine whether you or your family is eligible.

What Is the American Opportunity Tax Credit (AOTC)?

The American Opportunity Tax Credit, or AOTC, is a tax incentive designed to help offset the cost of undergraduate degrees. Qualified students, their spouses or parents who claim their child as a as dependent can earn a maximum annual credit of up to $2,500 per year, per student. Here’s how it breaks down:

• 100% of the first $2,000 of qualified educational expenses, including tuition and fees as well as books, supplies, and equipment needed to complete courses.
• Up to 25% of the next $2,000. 

That comes out to a total possible credit of $2,500.

However, if the credit brings down the total amount of tax you owe the government to $0, you can only have 40% of the remaining credit, or up to $1,000, issued to you as a refund. And it’s only available to those in their first four years of college — sorry, super seniors.

To be eligible for the AOTC, the student must:

• Be pursuing a degree or a credential — that is, auditing classes or taking a few courses for your plain old edification won’t cut it.
• Be enrolled at least half time for at least one academic period, be it a semester, quarter or even a summer session. 
• Not yet have finished a four-year degree.
• Not have claimed the AOTC — or the Hope credit, as it used to be called — for four tax years already.
• Not have a felony drug conviction.

You must also have a valid taxpayer identification number on or before the date of filing, and earn less than the specified modified adjusted gross income limits. For 2019, these limits are:

• $80,000 or less for single filers to get the full credit.
• $160,000 or less for those married and filing jointly to get the full credit. 
• If you earn up to $90,000 or $180,000, respectively, you may still be eligible for a reduced credit.

To claim the AOTC, you’ll need to get a Form 1098-T Tuition Statement from your school. You’ll then need to fill out Form 8863 and include it with your return at tax time. 

What Is the Lifetime Learning Credit (LLC)?

Like the AOTC, the Lifetime Learning Credit, or LLC, is a tax credit you can earn to help offset the cost of qualified higher educational expenses. Unlike the AOTC, the Lifetime Learning Credit only covers tuition, fees and other enrollment-related costs; books and supplies are excluded.

But this one’s available not only for the first four years of undergrad, but also for graduate and professional degree courses — supporting a lifetime of learning, just as its name implies. There’s no limit to how many years you can file for the credit, which makes it a great option for those considering a midlife career change or taking courses to increase and improve their skills. 

That said, this credit can only be claimed once per year per family or individual taxpayer, whereas the AOTC can be claimed per student. (More on that below.)

The Lifetime Learning Credit provides eligible students a credit of up to $2,000 per tax return. (Again, the tax-speak specifics: It’s up to 20% of the first $10,000 of qualified educational expenses.) 

However, if the Lifetime Learning Credit brings your tax bill to $0, you won’t receive a refund for the remaining amount.

Here are the eligibility requirements for the credit:

• You must be paying for qualified expenses related to higher education, like tuition.
• Those educational expenses must be paid for a student who’s enrolled at an eligible institution.
• That student must be you, your spouse or your dependent.

The Lifetime Learning Credit is subject to the following income limits in 2019:

• $58,000 or less for single filers to get the full credit. 
• $116,000 or less for joint filers to get the full credit. 
• If you earn between $58,000 an $68,000 as a singleton or up to $136,000 as a married couple, you may qualify for a partial credit.

Just as with the AOTC, you’ll need to get a tuition statement from your school and file Form 8863 at tax time. 

Am I Eligible for One of These Education Tax Credits — or Both?

Still not sure you’re eligible for either of these education tax credits? What if you meet the requirements for both?

Unfortunately, you can’t claim both the Lifetime Learning Credit and the AOTC on a single child. Parents can claim the AOTC on multiple children, and you can claim the LLC during the same year, but you can only claim the LLC once — and not on a kid you’ve already claimed the AOTC for.

In other words, the AOTC is a per-student tax credit, while the Lifetime Learning Credit is a per-taxpayer tax credit. That said, there’s another, easier way to figure out exactly what you and your family are eligible for.

Although it’s not exactly known for its speediness or cutting-edge technological advances, the IRS is slowly but steadily moving into the world of the 21st century — and has created an interactive app to help you determine if you qualify for either of these educational tax credits. It’ll also let you know if you can claim a deduction for tuition and fees.

And if you’re paying sky-high tuition bills, it’s well worth sitting down for a few minutes with your paperwork and seeing if you can get a break this April. Just one word to the wise: Make sure you’re actually eligible, or you could get audited and be forced to repay any credit you erroneously received with interest. You might also be banned for claiming the credit for up to a decade.

Now, if only they’d come up with an app that could do all your homework for you…

Jamie Cattanach’s work has been featured at Fodor’s, Yahoo, SELF, The Huffington Post, The Motley Fool and other outlets. Learn more at www.jamiecattanach.com.

This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.

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